Powell backs rate hikes; says financial risks contained

Dow Soars 600 Points as Investors Welcome Fed Retreat

"Our path of gradual increases has been created to balance these two risks, both of which we must take seriously" said Powell in prepared remarks at the Economic Club of NY.

Thursday's reports will probably not change expectations that the Fed will raise interest rates next month for the fourth time this year.

Powell's statement that interest rates are "just below" the neutral range came as a surprise which immediately fueled speculation of the Fed taking a pause in interest rate hikes next year.

Finally, "A couple of participants noted that the federal funds rate might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity", the minutes said.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - than is, neither speeding up nor slowing down growth", Powell told the Economic Club of NY on Wednesday. That remark had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months. The benchmark fed funds rate, at 2.00-2.25 percent, is within a quarter of a percentage point of the bottom of the Fed's estimated range for neutral, but is also several quarter-point rate hikes below the mid-point estimate of 3 percent.

He also said the central bank does not see "dangerous excesses" in stock markets and the financial system now is "substantially more resilient" than it was before the 2008 financial crisis. Friday's labor-market data will also be important, especially given the USA central bank has made clear its actions ahead will depend on how economic data unfolds.

The central bank's rate increases have gradually raised borrowing costs for consumers and businesses.

A footnote pointed out the Fed's staff assessed financial stability vulnerabilities as moderate as well.

Mr Trump has criticised Mr Powell repeatedly this year, saying that the base rate is unnecessarily high and risks curtailing an economic boom in the US. On Wednesday, he remained upbeat, forecasting continued solid growth, inflation near the 2 percent target and low unemployment.

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Powell's comments briefly pushed the USA 10-year bond yield below the psychologically key 3 percent level earlier on Thursday, its lowest level since mid-September.

For his part, Trump has sought repeatedly to shift blame for any economic troubles to the Fed and its rate increases.

USA law says Fed officials - and those of other independent agencies - can be "removed for cause", according to a report by The Washington Post on Wednesday.

On Wednesday, Jerome Powell offered few explicit clues on how many hikes will be necessary in 2019, but repeated his view the Fed will have to be especially responsive to the data.

"So, with a December rate hike and one or two more in 2019 that should be enough to put the Fed where they want to be".

Elsewhere, sterling traded at US$1.2779, losing 0.1 per cent versus the greenback.

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